LC-BH832-05 , Brady-Handy photograph collection , Library of Congress
James Eads . Photograph by Matthew Brady . Junius Morgan . Photograph by Disderi & Company .
event of default . But they were not risk free . To entice investors , the coupons paid upwards of 7 %, against the 3 % which the Bank of England — the Old Lady of Threadneedle Street — paid on British sovereign debt .
So Junius Morgan offered higher yields on riskier ventures than did other bankers . According to one competitor , he demonstrated “ an undoubtedly speculative turn .”
Raising the Money
Unlike iconic government-sponsored structures of the 20th century — Golden Gate , George Washington , Tappan Zee — most 19th-century American bridges were built by companies that charged tolls and sought profits . In the Gilded Age worldview , private enterprise should fulfill public needs .
With his groundbreaking design in hand , Eads turned his questing mind to finance . In January 1869 , he circulated a bridge company prospectus that dangled a 400 % return in just three years if all worked according to plan . ( It didn ’ t .)
The prospectus did entice 54 bankers and merchants from New York and St . Louis — and one from London — to subscribe for the bridge company ’ s common stock . Junius Morgan subscribed for $ 25,000 , while Pierpont committed to shares worth $ 100,000 ( par value ). Overlooked by Morgan biographers , these investments illustrate their penchant for risk . After all , this was speculative common stock , the venture sought to build a bridge not a railroad , construction had scarcely begun and Eads was a novice in civil engineering .
A year earlier , Eads had budgeted the bridge at $ 4.8 million , based on detailed calculations by his engineers . His new prospectus aimed to raise $ 10 million . Half the total would build the bridge ; the rest could reward the investors . Drafted by Eads , the first line claimed , “ It is assumed and believed that the tolls on the Bridge will safely pay interest on ten million .” From that vision , the plan proposed to issue $ 4 million in common stock , $ 4 million in first mortgage bonds and $ 2 million in second mortgage bonds .
Stock was the mainspring driving the whole scheme . Subscribers would commit to $ 3 million in shares ( face value ). This left a quarter of the equities unissued , but available in the company treasury . For the shares the company did issue , the prospectus forecast that investors would pay only 40 % of face value . That cash total , $ 1.2 million , would fund the stone piers and abutments .
After stonework stood tall in the river , Eads believed he could entice an investment banker to float $ 4 million in first mortgage bonds . Assuming the bridge company received proceeds of 90 % of par , the resultant $ 3.6 million would pay to erect the steel and iron superstructure . Then the St . Louis Bridge would open for business and revenues would flood its coffers — chiefly tolls paid by railroads crossing the Mississippi .
The prospectus envisioned that St . Louis Bridge would then reward investors with the bounty of unissued securities remaining in its treasury . An investor who had
The Morgan Library & Museum , New York subscribed for $ 100,000 in stock would have paid only $ 40,000 . At the bridge ’ s completion , he could possess stocks and bonds worth $ 200,000 , once given his due in unissued shares and second mortgage bonds . Eads planned the grand opening for December 1871 , suggesting a 400 % return on investment in short order .
These numbers caught the attention of sophisticated bankers and investors , and Eads got the money . It is also interesting to note the Morgans were trading on their own accounts . In committing their own funds to common stock and then underwriting bridge bonds , they were embracing risk . Then and now , any venture dangling a quick 400 % return epitomizes risk .
An asset of enormous latent value bolstered investors ’ confidence . The bridge company held a 25-year monopoly , granted by the Illinois legislature , that blocked any competing bridge into St . Louis . This statutory gift ensured monopoly rents at the main entrance to a thriving metropolis . Here was private-sector capitalism with a turbocharged boost from the state — if Eads could actually build his bridge .
From Stock to Bonds
As Eads predicted , the $ 1.2 million in equity capital proved sufficient to build the stone abutments on each shore and two massive stone piers in the Mississippi . That unprecedented work preoccupied engineers and laboring men for 20 months . But success came with costs , as 13 sandhogs died from decompression sickness , struck down after working in caissons deep beneath the river . The overall schedule slipped by a year .
With the stonework successfully completed , the company needed to raise $ 3.6 million by selling first mortgage bonds to erect the superstructure . Bankers in Philadelphia , New York , London and Germany all declined the novelty and risk that Eads was selling .
At this juncture , the powerful vice president of the Pennsylvania Railroad ( PRR ), Thomas Alexander Scott — stepped in . He was a stockholder and board member of Eads ’ s company . In March 1870 , he dispatched his right hand , Andrew Carnegie , to London as an emissary to J . S . Morgan & Company . Morgan wanted direct assurances before staking his reputation and his investors ’ money on such a venture .
As its shareholders for more a year , the
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